tag:blogger.com,1999:blog-9430835.post2403911612218705724..comments2024-03-19T02:31:02.140-07:00Comments on Steve Sailer: iSteve: Why are corporate profits so high compared to a generation ago?Unknownnoreply@blogger.comBlogger111125tag:blogger.com,1999:blog-9430835.post-13644865360956990162011-06-27T02:23:46.106-07:002011-06-27T02:23:46.106-07:00One word: leverage.One word: leverage.Scotthttps://www.blogger.com/profile/05779740880163332649noreply@blogger.comtag:blogger.com,1999:blog-9430835.post-79846866324999421572011-06-24T17:24:51.588-07:002011-06-24T17:24:51.588-07:00>Blue Cross/Blue Shield, bear in mind, is a non...>Blue Cross/Blue Shield, bear in mind, is a non-profit corporation. Robert McGuff, the first president, was a devout Catholic who once confided to me he saw himself as "the Good Centurion."<<br /><br />Here's some inside info. The CEO of Blue in a certain southern state isn't Catholic, and made $30+ million one year.<br /><br />I wonder if any reader here with a Blue policy ever was paid out? I worked in the bowels and never saw even one claim that wasn't denied or litigated. Just asking. (I saw 600+ claims.)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-42053351911334681192011-06-23T19:54:26.967-07:002011-06-23T19:54:26.967-07:00I have seen the claim that profits are back to pre...I have seen the claim that profits are back to pre-war levels. One change that may be of interest is that pre-war companies didn't have employee-executives. They were smaller and were run by their owners. So executives may well have retained a much larger percentage of profits, but not as salary.Douglas Knightnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-86870831477177627892011-06-22T22:58:08.380-07:002011-06-22T22:58:08.380-07:00"Wes wonders if profits are that high said......"Wes wonders if profits are that high said...<br /><br /> OK, so we had over 100 comments on the evils of unusually high corporate profits, without ever establishing that corporate profits were unusually high by historical standards? Can anyone provide some data - data that spans most of the 20th century - that shows an historic spike?"<br /><br />Although the case for higher corporate profits is not so certain, I think it fair to say that the case that executive pay is higher - even much higher - than it was in the 70s, is more certain. And if corporate profits are not higher, than higher executive pay is even more scandalous.Mr. Anonnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-20680654815585557902011-06-22T18:05:34.065-07:002011-06-22T18:05:34.065-07:00OK, so we had over 100 comments on the evils of un...OK, so we had over 100 comments on the evils of unusually high corporate profits, without ever establishing that corporate profits were unusually high by historical standards? Can anyone provide some data - data that spans most of the 20th century - that shows an historic spike?Wes wonders if profits are that highnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-64651717133554946882011-06-22T14:38:57.364-07:002011-06-22T14:38:57.364-07:00Blue Cross/Blue Shield, bear in mind, is a non-pro...<i>Blue Cross/Blue Shield, bear in mind, is a non-profit corporation. Robert McGuff, the first president, was a devout Catholic who once confided to me he saw himself as "the Good Centurion." His philosophy was that "the big boys" could look out for themselves; his job was to look out for "the little guys."</i> <br /><br />I almost wish that iSteve-ers wouldn't post stuff like this - it's like watching Turner Classic Movies - it just breaks your heart to think what this country once was.<br /><br />[Even within the living memory of many of the younger of us, from our childhoods - distant, rapidly fading memories of how Americans, as a whole, used to be so much better of a people than we are now.]Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-35826608888039463942011-06-22T14:21:24.228-07:002011-06-22T14:21:24.228-07:00Note that Dean Foods has a market cap of 2.30 B do...Note that Dean Foods has a market cap of 2.30 B dollars and an annual net income of 91.49 million dollars for 2010. This implies ~4% ROI on the common stock which is pretty close to the risk-free interest rate (incl. inflation, etc...). In terms of economic profits, Dean Foods is already at zero.newt0311https://www.blogger.com/profile/00275501056310821335noreply@blogger.comtag:blogger.com,1999:blog-9430835.post-91233637133205876382011-06-21T21:16:51.508-07:002011-06-21T21:16:51.508-07:00The standard survey on executive compensation is b...The standard <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=163914" rel="nofollow">survey on executive compensation</a> is by Kevin J Murphy in 1999 (not to be confused by Kevin M Murphy). It has a graph showing both the time series for executive compensation and for the number of papers on the subject.Douglas Knightnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-66176965402925017212011-06-21T21:09:39.445-07:002011-06-21T21:09:39.445-07:00Steve,
thanks for that clarification on the 3 and...Steve,<br /><br />thanks for that clarification on the 3 and 4%. These numbers aren't important for your point, but I'm curious what they are.<br /><br /><a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=901826" rel="nofollow">Gabaix and Landier</a> claim that from 1980 to 2003, S&P500 market cap and ceo compensation both increased 6 fold. Assuming constant P/E, this corresponds to constant percent of profits. They say that it is well known that executive pay grows like the cube root of the firm size, at any fixed point in time, but that the constant varies with time and is such that pay is proportional to the largest firm size.<br /><br />Between 1993 and 2003, I found contradictory claims. This <a href="http://frank.mtsu.edu/~berc/tnbiz/stimulus/ford.html" rel="nofollow">time series</a> the percent of profits was the same (2.5%) at the end points, but much higher (4%) in 1999. Whereas, <a href="http://www.law.harvard.edu/faculty/bebchuk/pdfs/Bebchuk-Grinstein.Growth-of-Pay.pdf" rel="nofollow">this paper on a larger set of firms</a> claims that the top five executives moved from 5% to 10%. I thought it also claimed that CEO pay alone increased alone, but I can't find that anymore.Douglas Knightnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-40062960680606599032011-06-21T19:11:20.500-07:002011-06-21T19:11:20.500-07:00"Michael Duff said...
My guess is that the c..."Michael Duff said...<br /><br />My guess is that the cost of labor has plummeted since the '70s. China is essentially the world's plantation, keeping wages artificially low, keeping their own people in virtual slavery so it can dominate world trade." <br /><br />They might be the world's factory but they are hardly slaves. Quit insulting China by drawing parallels with the American south, which was not exactly a factory. <br /><br />The thing is that because China manipulates its currency, these wages are actually not that low, since almost everything else is artificially cheap, to paraphrase your words.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-83743299293004144152011-06-21T18:37:22.587-07:002011-06-21T18:37:22.587-07:00I just left a publicly traded company for a privat...I just left a publicly traded company for a private company.<br /><br />Private companies aren't run by CEO's or President's anymore. They are run by the guys in charge of pension funds like CALPERS, New Jersey Pension fund, New York Pension fund, etc. and Wall Street Money Managers. These guys are ruthless and that's who they take their orders from. If you are willing to play ball with them and you are a senior executive then you will get well compensated. Everyone else is SOL. <br /><br />It's funny that I pay tons of property taxes to teachers and police here in NJ and yet there pension fund actively tries to outsource my job as a programmer to China or India. Or better yet their pension fund tells the executives at my company to lay off all the American computer programmers and replace them with H-1B's from India and China. And all I endlessly here from our $100,000+ paid a year teachers/cops with great benefits/pensions is that they don't get enough respect and aren't treated well enough. Pleeeeeasseee. Thank the Lord for Governor Christie!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-71420936459922392722011-06-21T18:09:45.852-07:002011-06-21T18:09:45.852-07:00camlost: "Americans are still willing to pay ...camlost: "Americans are still willing to pay more for name brands, and slicker marketing."<br /><br />Yes, I know. That's the barrier to entry that I mentioned. You have to spend a lot of money on advertising to get Americans interested in your product, and after spending so much on advertising the only way to make a profit is to sell it at the same high price as the other brands. This is also an example of value transference because people are paying $3 for a tube of toothpaste that only has 30 cents of ingredients in it.<br /><br />anonymous: "That corporate profits briefly reached the same levels as in the 60-ies and 70-ies just before the recent crisis is hardly good evidence of any major shift"<br /><br />I would say that (1) measured GDP increased immensely, so corporate profits obviously increased also if they are the same percent of GDP; and (2) prior to the 1980s, corporations were the most tax-effective form of business, but today a lot of businesses are partnerships, so there are a lot of profits going to partnerships that previously went to corporations, so yes, as a percentage of GDP, corporations + partnerships would now be at an all-time high.<br /><br />Luke Lea: "As the ratio of capital to labor grows smaller (which is what trade with populous, poor countries like China effectively causes to happen) the rate of return to capital increases."<br /><br />OK, I agree with you that I oversimplified, and some of what you say above is probably happening.Half Sigmahttp://www.halfsigma.comnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-44260680349185734452011-06-21T18:00:50.118-07:002011-06-21T18:00:50.118-07:00Anecdote: I did interior plant maintenance (as in...Anecdote: I did interior plant maintenance (as in watering the flowers) for Blue Cross/Blue Shield of Tennessee, which is headquartered here in Chattanooga, for 25 years. This meant I had intimate contact with all the top management, in whose offices were most of the fancy plants. For the first 15 years the company was run by three executives on the 9th floor, the President and two Executive Vice-Presidents. Neither one of the two vice presidents could afford residential landscaping for their $200,000 homes, which was something else I did. They were making less than $150,000 a year tops. The President, Robert McGuff, who had worked his way up from the mail room after serving during WWII, lived in an even more modest house and was making a little more than $300,000/yr.<br /><br />Eventually Mr. McGuff retired and the Blue Cross board of directors brought in a new president from Chicago. He brought in half a dozen new execs to help him run the company and while they were all making more money than their predecessors it was nothing extravagant. They lived in $400,000 homes and I would estimate were earning roughly twice the salaries as before.<br /><br />But then that president retired and brought in a handpicked successor, a female former nurse who grew up in the area and (presumably) had a lot on the ball. She expanded the number of vice executives on the 9th floor to more than a dozen. A year ago there was a story in the local paper detailing the compensation of some of these vice presidents. A couple of them had pay packages in excess of $5 million/yr. Presumably the pres. was making even more. <br /><br />Blue Cross/Blue Shield, bear in mind, is a non-profit corporation. Robert McGuff, the first president, was a devout Catholic who once confided to me he saw himself as "the Good Centurion." His philosophy was that "the big boys" could look out for themselves; his job was to look out for "the little guys."Luke Leahttps://www.blogger.com/profile/11290760894780619646noreply@blogger.comtag:blogger.com,1999:blog-9430835.post-15394814345647254602011-06-21T17:49:39.237-07:002011-06-21T17:49:39.237-07:00The bottom line is we moving in the direction of t...<i>The bottom line is we moving in the direction of the third world.</i><br /><br />That may be true. It's also possible the third world is moving to the US. Lots of evidence of that in my neighborhood.Erichttps://www.blogger.com/profile/10330712047609650184noreply@blogger.comtag:blogger.com,1999:blog-9430835.post-19668214132377237922011-06-21T16:43:05.461-07:002011-06-21T16:43:05.461-07:00The arguments being made here in favor of the stat...The arguments being made here in favor of the status quo are incredibly lame. The bottom line is we moving in the direction of the third world. That is bad and needs to be reversed anyway you slice it.ATBOTLnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-13240101680355911222011-06-21T16:02:44.329-07:002011-06-21T16:02:44.329-07:00OK, no one ever seemed to deal with the claim that...OK, no one ever seemed to deal with the claim that corporate profits may not really be out of line with history. If you go all the way back to 1929, there have been other periods of similar profitability from what I can find.<br /><br />If you have other data, please provide it. Because until we prove something "new" is happening, it makes little sense to discuss "why" it's happening (since maybe it's not).Wes - High Commander of the Lizard Peoplenoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-15461182432477065952011-06-21T15:37:35.878-07:002011-06-21T15:37:35.878-07:00I think you're all (or almost all) trying to e...I think you're all (or almost all) trying to explain something that no one here, including Steve, has shown to actually exist.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-63602948128732687282011-06-21T15:33:08.645-07:002011-06-21T15:33:08.645-07:00Part 2:
The first distortion is that debt must ri...Part 2:<br /><br />The first distortion is that debt must rise exponentially to increased demand. Because this is then the only way to close the demand-supply gap arising from the growing wage gap. The borrowing may be incurred by consumers and the government but not by cash rich corporations. The quantum leap in budget deficits in the US economy since the early 1980’s is purely the result of this phenomenon. This is the first distortion because the demand-supply balance is maintained artificially by ever increasing debt creation and cannot be sustained forever.<br /><br />The second distortion occurs from <b> a quantum jump in corporate profits. </b> Once the demand-supply balance is maintained through increased debt then profits must rise sharply because with wages growing sluggishly the fruit of increased productivity accrues mainly to the owners of capital. So CEO incomes jump. The profit leap is a distortion because it cannot be maintain without mushrooming debt. The artificial rise in profits triggers an artificial jump in share prices and leads to a stock market bubble which must burst one day because it is all supported by an exponential rise in borrowing.<br />The moment debt growth slows profits begin to fall and this can lead to a crash. As occurred in1929.<br /><br />One distortion feeds another. As the market crashes the government must do something to contain its aftershocks. For instance, it slashes interest rates to lure more people into borrowing. If it does not a depression may result as in the 1930’s. But if it does, there will be a housing bubble because exceptionally low interest rates generate big declines in monthly mortgage payments and thus raise the demand for homes. So the government avoids a depression but only at the cost of future stability. This is why we now face a housing bubble around the world in the aftermath of the global stock market crash of 2000.<br /><br />With the continued rise in the wage gap the rich keep getting richer at a record pace. But the stock market crash puts them in a quandary. What to do with all that money? With the share market losing its allure the rich look elsewhere. They maybe ultra rich but they want even more. So their cash ends up in exotic assets such as hedge funds, especially those that discover new avenues of speculation like investing in oil or mortgage backed securities.<br /><br />These are all distortions that have results from the rising wage gap in the United States.<br /><br />----<br />Immigration will lower wages as well.Cockerney Geezernoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-29254912547106235622011-06-21T15:29:17.883-07:002011-06-21T15:29:17.883-07:00I saw and bookmarked this earlier:
http://ablanksp...I saw and bookmarked this earlier:<br />http://ablankspotonthemap.blogspot.com/2011/06/neoliberal-economy-in-nutshell.html<br /><br />Part 1,<br /><br />Monday, June 20, 2011<br />The Neoliberal Economy in a Nutshell<br /><br />Economics in a Nutshell<br /><br />Ravi Batra ; The New Golden Age<br /><br />The Rising Wage Gap<br /><br />Four main causes of poverty in the United States<br />1) The rising price of oil<br />2) Low minimum wage<br />3) Regressive taxation<br />4) Globalization<br /><br />Wage productivity gap<br /><br />All four relate to government policy and reflect official corruption because they all impoverish the general public while making the rich richer. Furthermore, they add to the global economic imbalances and threaten to unleash global chaos in the near future.<br /><br />Official corruption threatens economic stability around the world because it raises what may be called the wage gap which simply is a measure of the difference between labor productivity and the real wage. For the sake of precision, the wage gap may be defined as worker productivity divided by the average real compensation of employees. An economy functions smoothly and efficiently only if this gap remains constant and small. It morphs into a myriad of imbalances if the gap grows as it has since 1980. An economy is efficient if it maintains full employment with out resorting to excessive debt. Excessive debt itself is linked to the rising wage gap. Anything that lowers domestic labor demand tends to raise the wage gap because when labor demand declines the real wage falls relative to worker productivity. The rising price of oil, low minimum wage, regressive taxation and globalization all tend to trim domestic demand for workers. So they all increase the wage gap over time.<br /><br />How is all this relevant to our economy? Wages are the main source of demand and productivity is the main source of supply. Overtime, business investment and new technology lead to a rise in productivity and hence supply. If real wages keep up with productivity consumer demand matches the growth in supply so that the demand supply balance is maintained in a natural way. Here the economy tends to function smoothly and efficiently. However, if real wages trail productivity growth and the wage gap rises, supply grows faster than demand. Many distortions then arise and if they are allowed to fester the end result is growing poverty and possibly economic collapse.Cockerney Geezernoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-78598552589087334042011-06-21T14:56:21.540-07:002011-06-21T14:56:21.540-07:00A big chunk of the intellectual class, and of the ...<i>A big chunk of the intellectual class, and of the ruling class, has a direct or indirect interest in seeing money and power flow toward the top of the pyramid.</i><br /><br />That's part of it. The other part is the interrelationship of boards and CEOs. Most of these guys are sitting on a half-dozen boards in addition to their CEO job, so there are only a few hundred people in control of much of the business world. They have a vested interest in not fighting too hard on CEO compensation as board members, since their own compensation will be considered in light of the average for CEOs of similar-sized corporations.<br /><br />In theory the shareholders will eventually draw the line on CEO pay. But who votes in corporate elections? It's mostly banks and big mutual funds controlled by the same sorts of people.Erichttps://www.blogger.com/profile/10330712047609650184noreply@blogger.comtag:blogger.com,1999:blog-9430835.post-20973995605455249582011-06-21T14:43:44.896-07:002011-06-21T14:43:44.896-07:00It's almost like incumbents are favored when r...It's almost like incumbents are favored when regulation raises the barriers to entry and it's more economical to buy a senator than it is to compete with the other players in your industry.<br /><br />For instance, say you're running a bank and you want to use a patented process, but you don't want to pay the patent holder (leaving aside, for a moment, whether one ought to be able to patent a process). And further suppose you unsuccessfully fight the patent holder in court. Instead of paying up you can always just <a href="http://www.nytimes.com/2011/06/15/business/15schumer.html?_r=1" rel="nofollow">pay off a Senator</a> to make the whole thing go away.Erichttps://www.blogger.com/profile/10330712047609650184noreply@blogger.comtag:blogger.com,1999:blog-9430835.post-90737131431726075572011-06-21T14:42:45.938-07:002011-06-21T14:42:45.938-07:00kurt9:
Not just regulatory capture, but ideologic...kurt9:<br /><br />Not just regulatory capture, but ideological capture as well. Lots of the best and brightest Harvard and Yale kids have wound up on wall street, management consultancies, marketing companies, etc. A big chunk of the intellectual class, and of the ruling class, has a direct or indirect interest in seeing money and power flow toward the top of the pyramid.NOTAnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-81719139137448646232011-06-21T14:38:03.668-07:002011-06-21T14:38:03.668-07:00Camlost:
I'm pretty sure people are buying th...Camlost:<br /><br />I'm pretty sure people are buying the walmart toothpaste (it wouldn't be on the shelves otherwise). Most likely, though, one of the big manufacturers is making it under contract. Making an unadvertised, cheap store brand is s nice way to capture business without undercutting your name brand product too much.NOTAnoreply@blogger.comtag:blogger.com,1999:blog-9430835.post-20238715448751201892011-06-21T14:26:25.544-07:002011-06-21T14:26:25.544-07:00The 3% and 4% figures are just my rough estimates ...The 3% and 4% figures are just my rough estimates from hazy numbers in the article of the Dean Foods CEO's compensation relative to total profits in 1979 and 2009.Steve Sailerhttps://www.blogger.com/profile/11920109042402850214noreply@blogger.comtag:blogger.com,1999:blog-9430835.post-48945062671121614432011-06-21T14:07:14.223-07:002011-06-21T14:07:14.223-07:00Every social system starts out as a meritocracy an...Every social system starts out as a meritocracy and ends up as an aristocracy. We're no different.Anonymousnoreply@blogger.com